Quiet FX, rumors of SNB intervention

Market Brief

The Japan Diet is dissolved, preparations for December snap elections will now make the new headlines. Amid the aggressive Yen sell-off, the Japan Finance Minister Aso warned that high volatility in FX, on either side, is unwelcome. He mentioned additional budget, new economic packages are underway before the year end. USD/JPY corrected to 117.36 in Tokyo. Given the overbought conditions (RSI at 78%), we see consolidation before the closing bell. Option bids trail above 116.75/117.00, mixed bets abound between 115.75/116.30, large offers sit at 115.50-.

EUR/USD remains capped at 1.2577/78 (Nov 4th & 17th highs). Yesterday’s 1.26 attempt saw little follow through, as a clear signal of short net positioning. More resistance is eyed at 1.2722/42 (daily Ichimoku cloud base/Fib 23.6% on May—Nov sell-off). As expected, EUR/GBP sees solid resistance pre-200 dma (0.80528). Better-than-expected retail sales helped cooling down upside pressures, however option bets are supportive at 0.7970/80, large expiry waits at 0.8010.

The pressures on EUR/CHF 1.20 floor are slightly easing. The pair shifted to 1.20176/1.20245 range. There are rumors running on possible SNB intervention. USD/CHF remains offered below its 21-dma (0.9605) for the third consecutive session. Developing bear market suggest the extension of weakness toward the 50-dma (0.9534). Light vanilla calls will expire at 0.9530/60 before the closing bell.

The Cable failed to break above 1.5737 yesterday, the formation of weekly double top suggests limited enthusiasm. The daily conversion line is flat. A break above 1.5736/37 week top is needed for a bullish open on Monday.

USD/CAD remained well bid at about its 21-dma (1.1303) despite the unexpected 1.8% surge in wholesale trade in September. Trend and momentum indicators stagnate at marginally bearish territories before October CPI print. Markets anticipate 0.2% contraction in monthly inflation, the headline CPI and core CPI are expected stable at 2.0% y/y and 2.1% y/y respectively. Any negative surprise will buy time for the BoC before tightening tone, therefore should push the loonie lower.

In the EM, USD/RUB gap opened at 46.1274, the MACD stepped in the green zone suggesting deeper downside correction to 44.95/45.50 (21-dma/Nov 12th low). USD/BRL shortly traded down to 2.5410, yet the close at 2.5730 keep traders unconvinced before more clarity on Rousseff’s new finance team. Decent option bids trail above 2.52 before the week-end. The formation of bearish harami on EUR/TRY suggests deeper bearish move. Carry traders’ appetite for the rate spread intensify as volatilities remain soft.

Today’s economic calendar : Swiss October M3 Money Supply y/y, Italian October Hourly Wages m/m & y/y, UK October Public Finances, Canadian October CPI m/m & y/y and US Kansas City Fed Manufacturing Index.